THE SENSITIVITY OF FIRMS’ LOCATION DECISION TO TAX AND NON TAX ARGUMENTS: EMPIRICAL EVIDENCE FOR SELECTED CITIES

Abstract

The recent tendency of firms’ mobility shapes regional policy, in particularly tax policy. But when the states concede fiscal benefits at the same time, it is necessary to investigate what should the firm decide and to include others investment determinants in this analysis. For this reason, the aim of the present paper is to include the localization decisions of firms when there is fiscal war. We choose as case study some cities at border of Minas Gerais and Rio de Janeiro, where it has been usual to dispute investments between the local governments. Using Poisson model, we confirmed the firm’s attraction effect resulted from fiscal benefits, as well as the importance of wages, industrial agglomeration and aggregated production (GDP). This suggests that a local fiscal policy of reduced taxes is in consonance of the location decisions of firms.